Master of Business Administration

Strategic Management

Carrefour Misadventure in Russia

Supervised By John Kalmus

Submitted By Muhammad Omair

STU 22782

Submitted To IBAM

Word Count 3898

Submission Date 22 January 2011

Carrefour strategy is comprised of following components

• Organic, Sustainable and Profitable growth

• Fast return on capital employed

• Market Leadership through

• Acquisition

Carrefour started business in 1963 by introducing the idea of hyper market by providing thousands

of products under one roof. Soon after the success of hyper market Carrefour started targeting the

customers with discounted stores. Carrefour is now world Europe largest and world second largest.

Carrefour Major Merger and Acquisitions

• 1998 acquisition of Comptoirs Modernes

• 2000 merger with Promodes

• 2000 partnership with Maus group to enter to Switzerland

• 2001 acquisition of Notre largest retailer in Belgium

• 2003 acquisition of Italian retailer Hyparlo which increased its stake in Colombia from 55 to

100

• 2003 joint venture with Norwegian company Norges Gruppen

• 2003 acquisition of Ahold in Poland

• 2004 sold 1.2 billion $ assets for growth

• 2005 acquisition in Taiwan, Turkey, Cyprus and France

• 2005 sold $264.1 million assets to Tesco in Czech Republic and Slovakia

• 2006 acquisition of 5th largest retailer in Spain

• 2006 selling of South Korea operations to E-Land

• 2007 acquisition in Romania

• 2010 100% acquisition of Turkish company

• 2010 alliance with India’s future Group

• 2010 acquisition of 51% of Hebei Baolongcang Chinese operator

Source: Data Monitor 26 July 2010

The company started its business in France and adopted the organic growth strategy as the market

was not saturated at that time and company was also not so much financially strong. The company

used its assets and sales to develop its position in market and after two years company was in a

position to move in international market. Carrefour’s adopted the organic growth strategy in France

until it was in position of acquire its competitor. The company acquired the French retailing group

Comptoirs Modernes in 1998 which make the company the leading retailer in the country. The

company get benefit of both strategies to become largest, after the regulations imposed by

government on hyper markets which are more than 780 in France, the organic growth has stopped

and now competition is only on price. Carrefour adopted the same strategy in Belgium, Spain, and

Italy. In 2000 Carrefour merge with Promodes to become largest retailing group in Europe and

second largest in world. Its acquisition in Italy, Spain, Belgium and Romania make it largest retailer in

those countries.

In every country where Carrefour entered it focused on organic growth or acquisition. If we analyse

the countries where Carrefour is operating, it was the first international firm to be in those countries

giving it competitive advantage over its competitors. Countries where market is not saturated or

small in size company tried to make it presence by using its brand, hyper, supers, discounted and

convenience stores , however the countries where Carrefour was unable to make its impression it

has straight away gone for acquisition.

Both of these strategies seems to be good, as in saturated and big economies like Brazil, China,

Russia and India it is very difficult for any company to establish its brand because there are lot of

local players there which have major hold of the markets example could be Russia where 13 major

national and international player are having only 12 % of the market. Secondly if company takes time

for building its brand for long time in such market, it might lose the opportunity cost for the time

and investment. So acquisition can be good strategy for expansion. When any company or Carrefour

goes for acquisition it captures its market share in less time and save investment in building

business, it may provide with the knowledge and the talent sharing as well, even companies like

Tesco and Wal-Mart are also doing merger and acquisition in different countries. e.g. Tesco have

acquired Carrefour assets in Czech Republic and Slovakia, Tesco joint venture in India for Cash and

carry business, Tesco in final deal with Carrefour for purchasing its assets in Malaysia, Singapore and

Taiwan. Wal-Mart is also doing strategic alliance to get hold of Chinese market. Even Wal-Mart was

planning to acquire kopeyka in Russia for its entry to Russian market however it entry was stopped

by X5 market leader of Russian retail by purchasing the company in $1.6 billion.

We can say that acquisition is good strategy for Carrefour in countries like China, Russia, India, or

Brazil which have many cities with population in millions or in market where it’s difficult to get enter.

However Carrefour was the first international retailer in China so it focused on organic growth and

kept it at 20% for 2008 but keeping in mind the small acquisition as well. So we can say that

Carrefour was quite successful in it strategy of organic growth and acquisition. Wherever it has

acquired companies it has achieved its strategy of organic, sustainable growth, with fast return on

investment and market leadership. However there are many countries where Carrefour failed like

Russia, South Korea, Japan, Slovakia, and Czech Republic, Malaysia, Singapore etc

There were many other factors which were cause of its exit from those countries. Still Carrefour has

sold it operations in that country to companies like Tesco, E-Led. We can assume that Carrefour

could have it strategy to test new markets get acquisition of local player if its not successful sell

those asset to other companies. Overall we can say that country where Carrefour was first to enter,

and their were organic growth and it can increase its market share by increasing sales it focused on it

and also kept the idea of acquisition in mind for getting market leadership, and Carrefour history

shows that it has achieved market leadership in 17 countries out of 30 in which it operates using

both strategies.

2. There are many framework, concepts and model which can be used to understand the business

environment. Some of these framework are ideal for macro while some for micro environment of

the business, some with factors related to the market and product, however the most important

thing is these help the strategist in designing the business plan for company and to analyse which

factors are likely to effect the business operations, its day to day activities and up to which extent.

During the analysis of environment strategist need to answer the most possible question which can

affect business some of these are as follow.

What are our Strengths, weakness and possible opportunities and threats

What are our core competences

Should we enter this market or not (suitability, feasibility and acceptability)

Is market really attractive for long term growth and profit

What are political, economic, social and technological issue which may effect our business

Who are buyers and what’s their preferences

Competitors, market saturation, substitute, suppliers, distribution

Our strategy new product, market segmentation, Merger, acquisition etc

PEST Analysis

Pest analysis is used to understand the impact of external factor which may affect the business. Pest

analysis helps the strategist to analyse extent to which these factor can be changed and how change

in these factors can affect our business.

Political

Bureaucracy

Complicated Legislative Framework

Red tape

Corruption (e.g. Carrefour agreed to pay 15 % of Moscow Store Revenue for getting alcohol

licence)

IKEA in legal issues

Economic

Russia is in Four Big emerging economies

Retail sector with worth $480 Billion

High acquisition cost (e.g. seven continents worth $ 1.25 billion having market share of 1 %)

Local shops, corner shops doing more business (13 local and international retailers with 12 %

market share

Potential market for long term buyers (Auchan, Metro, Mosmart, X5 all working well in

Russia) Tesco and Wal-Mart thinking to step in

Russian economy majorly relies on Oil and Gas Sector so it creates good growth opportunity

for business

Socio-Cultural

Big City (Capital of Country)

14 cities with population over 1 million

Spending habits of Russian up to 94 % of Monthly earning

Prefer corner shop, outdoor market and unbranded shops

Technological

Less developed infrastructure

Less innovation

PEST Analysis of Russian Retail

Source: Adapted from RDI I Learn

The PEST analysis suggest that the Russian economy is amongst the big four, a country with

population of 142 million and 14 cities with more than 1 million population, Russian retail market is

approximately $480 billion. Economic conditions depict us that country is highly attractive. Country’s

economy is based on the oil and gas sector which has positive role on market growth. Overall it is

high growth country market for long term potential growth. People have spending power and they

spend 94 % of their monthly income and in Moscow spending is high as salaries are double here.

Market is less developed in term of technological, lot of innovation can be done if company have

latest technological that can be advantage for company. However the country has political problem,

Carrefour Business Objective & Strategy

4. Acquisition of local player

1. Market Leader or In

Top 33. Low Price

Good Quality

2. Lasting Profitable

growth

Political

Bureaucracy Complicated

Legislative framework

Red tape Corruption

Socio-Cultural

Big City Spending

Habits Own Houses

Economic

Russia in 4 Bs Retail Market

$480 Billion Oil & Gas Based Potential

growth Market

Technological

Less developed infrastructure

Less innovation

its bureaucratic, companies will have to deal with the politician and bureaucracy which are doing

corruption e.g. IKEA involvement in legal matters and Carrefour’s Moscow store 15 % revenue for

alcohol licence. Country has complicated frame work and incident like red tape may prevent

companies from entry.

Limitations of Pest analysis

It only addresses the external analysis no emphasis on internal factors

It may tell the change in any factor but can’t gauge the change and how rapid is change e.g.

political or technological or financial change

Being external analysis it require lot of updated information which are not easily accessible

Collecting data and information from agencies may cost high

Porter 5 forces

Porter 5 forces model is based on competition and applied to industry. This model has 5 forces

which can affect the industry.

Rivalry

This factor show the competitive rivalry amongst the competitors, important things under

considerations here are

What is the number of competitors and what are there capabilities

If you have many competitors and if they are offering equally attractive products at low

prices then you have less power

Supplier and buyers are not getting enough return they will switch to others

If you are offering something different than you will have strength

If the rivalry amongst the industry is low it is considered to be disciplined

If you change price competitor may change to get competitive advantage

Buyer Power

Buyer power can affect the industry, usually they have the power to change prices, and however

important points are as

Does buyers have power to force you for changing price

Switching power and extra cost

If buyers are few then they are strong

Supplier Power

Suppliers have significant affect on the industry in term of providing raw material and can affect the

industry

Suppliers have power if intense competition and few supplier available

If switching cost is more suppliers are powerful

If customers are powerful suppliers are also powerful vice versa

Threat for entry

Difficult to enter if government regulations vice versa

Easy to enter if low distribution cost vice versa

Easy to enter if exit cost is low vice versa

Substitute option

If there are many option

Less associated cost

Porter5 Forces for Russian Retail Market

Porter 5 forces for Russian industry suggest that there is strong rivalry amongst the competitor with

respect to price and differentiation so if company don’t have economy of scale or different product

or service to it will have very low power. Buyers have no power as they can’t affect the power, they

are huge in number in million and have limited option to switch. People prefer unbranded local item

Suppliers have less barraging power as lot

of suppliers are in market. So companies have more power over

suppliers

Price war is high, companies competing on price, moreover saturated market with lot of local and international players

Option for Substitute is available due to many local and international

players

New Entry is not easy Bureaucracy, Legislative Framework, Corruption Saturated Market with Lot of Local and International Players but possible to enter

Buyers have no power

or low price items. Supplier are also having less power as the market is saturated and there are lot of

suppliers and there is switching cost as well due to current market crises. New entry is also not easy

due to complicated legal regulation and corruption which can cost huge to organisation. However

there is space for substitutes, options are available buyers can switch to local streets shed, and

corner shop. So overall Russian retail market has 3 stars which is favourably good for investment.

Limitation of Porter 5 force model

It does not address political and legal factors which are very important

It can only be applied to industry as whole (e.g. retail industry but can’t be applied on

mineral water or food industry alone) which can effect the final results

It does not deal with Merger and acquisition which can be done to reduce or eliminate

competitive advantage

The Ansoff Matrix

Ansoff matrix is useful tool which tell the company to analyse their strategy is rightly chosen for the

market and product. It has four sections in market penetration it is usually suggested that in order to

increase current product share. This can be done either by offering new product to its existing

customer for increasing market share e.g. Pepsi started Mountain Dew or company can target

competitors customer through marketing or can attract non-user customer by offering additional

benefits e.g. Tesco offer points through club card.

When company decided to be in current market with new product it requires product development

by adding new features to existing product e.g. mobile with new technology or offer different level

of products quality e.g. Tesco products with different quality level or need to offer completely new

product. When company decides to go for market development; which is bit risky company, need to

find new market segments, with new modes distribution and geographical areas.

The fourth option is diversification this can be done when you are trying to enter new market with

new product. Which is again involves risk as it completely new market with new products so

company usually go for strategic alliance e.g. Tesco with Indian company to start cash and carry

business or merger e.g. Orange and T mobile or acquisition Carrefour taking Ahold

Pr

oduc

t or S

ervi

ces

MarketCurrent New

Curr

ent Existing Customers

Competitor Customers Convert non- user

New market segments New distribution means New geographical areas

New

New features New quality level New product

Strategic alliance Mergers Acqusitons

Limitations of Ansoff matrix

It deals with only product/Service and market no in-depth analysis of Micro/Macro

environment

No analysis of company strengths relative to product/service and market

Conclusion

It is concluded that these tool are quite helpful when used together to evaluate the market position

and business environment. We can’t use these tools alone because some of these are addressing the

internal and external environment of business, few with market and product, and some of them with

the company strength and weakness. When these tools are applied alone they come up with some

limitations so in order to get the maximum benefits strategist uses combination of these tools to

clarify all the question before entering into the new market.

Note: Refer to appendix for few more models

3. Carrefour’s Core Competence

• Multi format strategy (Hyper Market, Discounted Stores, Super markets, Convenience

Stores, Cash and carry and food service)

• Diversified business with strong brands with low prices

• Business Intelligence

• Strong Distribution Channel

• Innovation

Carrefour is company with innovation and knowledge management, started business with

revolutionary style of hyper market by introducing the idea of self service and thousand of products

under one roof. Carrefour has successfully implemented its idea of hyper market in France in

addition to discounted stores and became the top leader in France. Soon after that it started to

expand in Europe due to its innovative ideas Carrefour became number 1 company in Europe and

second largest in the world. The company idea of multi format strategy was source of its competitive

advantage and same idea is now used in capturing the new market.

Carrefour has strong brand recognition and is working under different names and banners

worldwide. Carrefour’s has adopted the differentiating strategy by using its multi format strategy

(hyper, super, convince stores) which was key for its organic growth in France, when it entered in

Europe particularly in Belgium, Spain and Italy it was very successful due to its multi format strategy

and wide range of brands. According to Carrefour annual report (2008) its 74% of its sale come from

these four countries. Multi format business strategy is Carrefour major competence which has given

competitive advantage to the company in Europe, Brazil, US, China and other Asian countries.

Carrefour has also adopted the cost leadership strategy for its brands using its hard discount stores,

Carrefour is offering different brand at lowest prices as compared to its local and international

competitors. The company can sustain its growth by introducing new idea according to the needs

and wants of the customers. And for this company has introduced customer oriented strategy which

completely focuses on customer and building relationship with customer and making them loyal.

Carrefour is extending its product line by adding new products bringing more innovation to its multi

format business and now focusing on customer’s needs according to the cultures, preferences, and

lifestyle, which was neglected in past and was reason for its exit from different countries. Example

for this could be Euro monitor (2007 cited in Raphael 2008) states that Carrefour is more successful

than Wal-Mart in Urumqi China where Carrefour is not selling any pork meat as its Muslim majority

area, while Wal-Mart has adopted the unified strategy for whole China is now behind Carrefour.

Another example could be Carrefour shopping service though internet in Brazil and home delivery

service.

Carrefour is also manufacturing the local product in China and as Chinese people prefer fresh and

natural food so Carrefour is providing them with organic and fresh food from China. The company

can sustain its competitive position by using its convenient and hard discounted store by offering

unbranded products which are cheap, like in Russia people prefer to buy for outdoor market, street

stands, corner shops and unbranded products.

Carrefour is dealing with thousand of brands especially in the field of food the company in now

manufacturing its products in the same country. Thus building strong relation with the distributors

e.g. Raphael (2008) stated that Carrefour has secured 160 kilometre square farms in China where

more than 40,000 farmers can work for producing fresh food, reducing the risk of suppliers and

procurement cost as well so giving them competitive advantage over Wal-Mart. In the area of

distribution company has developed centralised distribution channel as China has no national logistic

service so again building competitive advantage over its rival. However there are some negative

things associated with Carrefour e.g. no equal employment opportunities in Russia and Korea, fail to

understand Russian market; property procurement was also not good in Russia (not prominent, not

easily accessible) etc.

4. Cultural issues for Carrefour

Organisations are growing rapidly due to the globalisation resulting in different types of cultural

issues. Data monitor (2010) states that Carrefour is doing business in 30 countries with more than

15000 stores including 475,976 employees. It operations include different geographical areas of

world including Europe, Latin America and Asia. Since the company is running business in different

countries having different culture and lifestyle, which are causing cultural issues due to which

company is facing problems. Since the majority of Carrefour expansion is due to acquisition so it

makes more problems. For example in when one company is acquire other company, two different

culture comes together and if management is unable to cope with change in culture it leads to

serious issues. Second type of culture difference comes when Carrefour enters in new country its

people have different culture, different way of lifestyle, spending habits which if not understood by

company leads to serious threat to company.

e.g. Carrefour entered in South Korea and failed to establish due to cultural problem. According to

White Book - European Retailers in South Korea & China (2002) hyper market was doing well for

Carrefour, however South Korean were asking more than price, they were demanding for positions

in management. Same type of issue was seen when Carrefour entered in Russia. There was no

representation of Russian people in management; it is very difficult for the company to survive in

this situation. This was the common mistake in majority of Carrefour exits.

There are number of ways through which Carrefour can manage cultural issue. For example

Carrefour is providing job to Chinese, According to Raphael (2008) Carrefour entire team in China at

domestic level comprise of Chinese. Carrefour want to encourage knowledge transfer to local

subsidiary so that it could achieve goals easily, which were not achieved in Korea due to the absence

of Koreans in management teams. Carrefour has not sell pork meat in Chinese city Urumqi due to

the majority population of Muslims. This decision has made Carrefour as market leader in city as

compared to the Wal-Mart who has unified strategy for all market. Moreover Carrefour is providing

fresh and organic food to Chinese according to their culture and life style.

Carrefour can manage the external cultural clash of the organisation by researching and adopting

the local culture, recruiting local people and serving customer according to their lifestyle and

preferences. Like Tesco aims to recruit those people who know local community well so that they

can serve in good way. The internal cultural issues which arise when two companies merge together,

they also merges two culture and two different types of people. So if one group is going to dominant

other it will create problems. In order avoid internal clash Carrefour may adopt the equal

employment opportunity regardless of employee origin and may try to promote the fairness and

equity while restructuring positions and structure of organisation. Adams (1963) argued that people

tend to compare on basis of efforts and output and try to remove any inequity found.

There are some ethical issue which also arise due to the Carrefour expansion, e.g. Carrefour agreed

to pay 15% of its Moscow store revenue to get alcohol licence. Such thing can raise issue from stake

holder or share holders. Robbins (2003) argued that employees consider management as benchmark

if they are practising high ethical standards then they communicate ethical expectation. So if

Carrefour follows ethical guideline it can avoid problem and can set example for employees.

References

1. DATAMONITOR (2010), Carrefour Company Profile, Retrieved January 20, 2011, form

Business Source Complete (University of Wales).

2. Exit Carrefour, Economist (2010), [e-journal] 396(8701), p77-77. Available through Business

Source Complete (University of Wales) [Accessed 20 January 2011]

3. Moreau, R. (2008) ‘Carrefour and Wal-Mart’s differing expansion strategies in China ’, Retail

Digest, p42-45.

4. RUSSIA: RISK SUMMARY, Emerging Europe Monitor: Russia & CIS (2010), [e-journal] 14(4),

p2-2. Available through: Business Source Complete (University of Wales) [Accessed 20

January 2011]

5. White Book - European Retailers in South Korea & China (2002), South Korea Shows Tesco's

Strengths, Carrefour's Weaknesses, Retrieved January 20, 2011 from Business Source

Complete (University of Wales).

Appendix

BCG Matrix

BCG matrix has the similar idea to product life cycle and can be applied to business unit or product portfolio and allows the firm to show its growth and market share in business.

Mar

ket G

row

th R

ate

Market ShareHigh Low

Hig

h Product is doing well Generating profit Low manufacturing cost

Product not doing well Low market share with low

cash Investment or withdrawal

Low

Product performing well Steady Growth Generating cash Can be reinvested or

provided to other unit

Slow or static growth Consuming resouces Dispose off business

Limitations of BCG Matrix

It can only be applied to Business units Some time high market share cant give success So business give more cash at dog than cow

Suitability, feasibility and acceptability

Suitability

Should we go into market

What is our strategy

Does it matches to organisation culture

Do we have competences to avail market opportunities

Do it address the market threat

Feasibility

Is strategy is realistic

Do we have right skills, knowledge and core competence

Do we have financial resources

Is this strategy workable

Acceptability

Is strategy and outcome will benefit us

Is strategy acceptable to stake holder, shareholder etc

Is strategy acceptable by management

Company only choose that project which are going to benefit it. Selection of the project is based on

the strategy, opportunities, market threat if the project is suitable and beneficial for company then

its feasibility and acceptability is checked by analysing that organisation can achieve this and do we

have resources and is it acceptable to all stakeholder, management and share holders.

Swot analysis of Carrefour

INTE

RNL

Beneficial HarmfulStrengths

Brand Name Brand Recognition Brand Leader in many countries Goodwill World Number 2nd Retail

Company Multi format Strategy (Hyper

market, super market, hard discount stores and convenience stores)

Low Prices

Weakness To much rely on acqusiton No Russian at managerial level

EXTE

RNAL

Opportunities China and other Asian markets Russian market Non Food business

Threats Political condition e.g. in Russia Low organic growth opportunites High acquisition prices

Limitations of SWOT analysis

It can only be applied to company It will show similar results when done in general for different company There are many factor which can be opportunity for one company while threat for other e.g.

technology

Journey Metaphor for Carrefour

Limitations of Journey metaphor

It can only be applied when company is doing business feedback can only be taken when company is doing business in market

ENTRY

Hyper Market

Stores in 3 cities

Market Leader

Or Top 3

Lasting Profitable Growth

Organic Growth /Acquisition

Lack of adequate organic growth

Unable to get Acquisition

Ohmae’s 9 Specimen Strategies

Mar

ket A

ttra

ctive

ness

HSEIM

Carrefour EntryGE AOS

MLE or WithdrawalCarrefour Exit

ES MS

L ML H HILM

L M H

Company Strengths